Driving for a Debt-Ceiling Deal: 6/22/11

Despite tough rhetoric by Republicans in recent months over their unwillingness to raise the country’s $14.3 trillion debt ceiling without drastic budget cuts, it looks like a deal may finally be in the making.
Not only did President Barack Obama and House Speaker John Boehner come together to discuss the matter over 18-holes and a couple of cold ones on Saturday, but House Majority Leader Eric Cantor (R-Va.) and Senate Minority Leader Mitch McConnell (R-Ky.) outright signaled that hope may be on the horizon for averting a U.S. default: an event many have said would be “catastrophic” for the U.S. economy.

“The discussions were very substantive and we’re all getting an idea of what the outline can be for some deal on the debt limit,” Cantor, one of the top GOP negotiators in the debt limit deal, told Barron’s after attending one of Vice President Joe Biden’s rigorous three-hour deal-making sessions last week. “I think it will happen….We want to show the people who sent us here that things have changed.”
Right now it seems that any deal to raise the debt ceiling rests upon an equivalent amount in spending cuts, basically: cut spending by $2 to $4 trillion and raise the country’s line of credit accordingly.
But as efforts to reign in the U.S. budget continue, so does the Republican’s refusal to agree to any tax hikes. “Tax hikes have been a red line in these meetings for me,” said Cantor in the same interview with Barron’s. “Everything is on the table, except for an increase in taxes.”

Meanwhile, even if a final deal cannot be reached by the August 2 deadline, Sen. Mitch McConnell (R-Ky.) said over the weekend that Congress would likely be able to find enough common ground to pass a measure to increase the debt ceiling for at least a few months. That way Congress could take the issue up again in the fall; or kick the can down the road yet again, as Aaron and Henry discuss above.

But, even with this ray of hope that Congress can avoid economic “Armageddon” by raising the debt ceiling in time, the country has got much bigger long-term problems and only one solution to date: